International (fisheries) agreements and game theory

1. International (fisheries) agreements and game theory

2. Why is international fisheries management important? • What are the major international agreements governing the exploitation of marine fisheries? • An example of failure • How can game theory help in explaining and predicting the behaviour of countries?

3. International agreements: characteristics • Countries negotiate on exploitation of common environmental & natural resources • Negotiations slow, countries or groups of countries may later find it optimal to deviate from the agreements • Disagreements on the size of environmental and natural resources • Lead even to military conflicts

4. List of International Environmental Agreements • London Convention on the Protection of Wild Fauna in Africa (1900; never ratified) • International Convention for the Regulation of Whaling (1946) • Convention for the Prevention of Pollution of the Sea by Oil (1954) • Antarctic Treaty (1959) • Treaty Banning Nuclear Weapon Tests in the Atmosphere, in Outer Space and Under Water (1963) • Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space (1967)

5. List of IEAs Continuing • Convention on International Trade in Endangered Species (CITES) (1973) • International Tropical Timber Agreement (1983; renegotiated in 1994) • Vienna Convention for the Protection of the Ozone Layer (1985) • Framework Convention on Climate Change (1992) • Convention on Biological Diversity (1992) • International Conference on Population and Development (1994) • International Convention to Combat Desertification (1994)

6. Overexploitation of fish stocks • historical records from 1600’s • resources are scarce, negative externalities • harvesting technologies have developed in the 1960’s • important food source and industry for many countries • Consequences: international conflicts, decreased economic value of fisheries

7. Law of the sea convention 1982 • Established the Exclusive Economic Zones (EEZ) for the coastal states (200 nautical miles from the coastline) • 90 % of the marine fish stocks are found inside the EEZs • Fisheries disputes remained • 1992 UN Conference on Environment and Development, Rio 1992

8. Transboundary Fish Stocks EEZ 1 EEZ 2 SH = Shared fish stocks STR = Straddling (and highly migratory) fish stocks EEZ = Exclusive Economic Zone

9. UN Conference on Straddling and Highly Migratory Fish Stocks 1993-95 • Attempt to establish property rights for the remaining 10 % of marine fisheries • Suggests cooperation through regional fisheries organisations • What are the optimal structures of these organisations?

10. Example: the Norwegian spring-spawning herring • One of the most valuable fish stocks in the world • Stock was depleted in 1970’s due to intensive harvesting • Migratory pattern changed • Fishing moratorium was declared for almost 20 years

11. Norwegian spring-spawning herring 9 x 10 14 12 10 8 Spawning stock biomass (kg) 6 Collapse! 4 2 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 Time

12. Fisheries economics and game theory • Rational countries maximise their net present value from harvesting for given strategies of other countries • Equilibrium where unilateral deviation not optimal • Cooperation vs. non-cooperation

13. Nash solutions to the fishery games • Non-cooperative, Clark 1980: Every fishing nation harvests at maximum effort until it is no longer profitable. At this equilibrium the stock is below the optimum of the most efficient country - “tragedy of the commons” • Cooperative, Kaitala & Pohjola 1988: The surplus benefits from cooperation are equally divided between the fishing nations. Thus the countries in a three-player game receive their threat point payoff + a third from the benefits generated by cooperation

14. Coalitional games • If countries can form coalitions with each other the solution of the game may be changed • The bargaining strength is then also defined by the coalitions • Stability of coalitions • Coalitional free-riding vs. individual free-riding

15. Bioeconomic modelling: from open access to full cooperation

16. Agenda • Bioeconomic = biological models + economic models • National vs International fisheries management • International: non-cooperation vs. cooperation

17. Bioeconomic modelling • National level: Fishermen exploit a common fish stock, say herring. • Biological model predicts the development of the stock without any economic activities  natural equilibrium • For economic analysis production function is needed, how the resource is harvested h = Ex • Further, we need prices to build objective functions for the agents interested in harvesting the stock  economic equilibrium • International level: Countries exploit a common fish stock

18. International cooperation: how to share benefits • Assume an agreement is reached for the two countries. • Then the question remains how they should allocate cooperative benefits • A further question arises whether they find the agreement satisfactory on this path. • In practice countries negotiate on TACs (Total Allowable Catch) • After receiving the national TAC they still need to implement national management (open access, TAC, ITQ (Individual Transferable Quotas), ITE (Individual Transferable Effort)

19. Game theory and fisheries • Countries exploit common fish stocks • Strategic incentives to subsidise the national fleet and create overcapacity  biological and economic inefficiency • Game theory helps to explain the reasons and find ways to reach sustainable agreements

20. Schäfer-Gordon model Gordon (Journal of Political Economy 1954), Schäfer (1957), Scott (JPE 1955)

21. Biology • Logistic growth F(x) • Biomass x

22. Logistic function • R: intrinsic growth rate • x: fish stock • K: carrying capacity of the ecosystem

23. Production • Harvest function: • E: Fishing effort • q: Catchability

24. Sustainability • F(x) = h • Steady state

25. Steady state fish stock

26. Steady state harvest • Insert steady state stock into production function :

27. Economics Assumptions: • Fish price per kg constant • Unit cost of effort c constant (constant marginal cost). Note marginal revenue not constant.

28. Optimum • Maximise economic yield by choosing E. max FOC: (7)

29. Comparative statics • dE/dR > 0 • dE/dK > 0 • dE/dc < 0 • dE/dp > 0 • dE/dq ?

30. Open access • Unregulated fishing. E.g. no international fisheries agreement. • Fishers (countries) enter into the fishery until profits (rent) is equal to zero.

31. Open access effort